CPI numbers this week I must say going back to March of last year you said that they've made him made the biggest fiscal
blunder in 40 years and inflation would be the result. Boy we're having it but we're even using surprised by the level of CPI
numbers. I think today's numbers surprised most observers. I'm not sure
it's short of it's pretty clear that peak inflation theory transitory inflation theory is kind of wrong
and it's wrong. You see it in the overall numbers and you also see it in the pervasiveness of the components. Almost everything
is up significantly. And my guess is that there's some major components that are actually going to accelerate in the months
ahead. I think the shelter component is going to be rising at 8 percent a year by the end of the by the end of this year. If you
look at all the private sector indices like Zillow they're going up much faster than that. If you look at the inflation numbers
medical care is still looking low. I don't know what that number means. Every time I talk to anybody in medical care there's a
desperate nursing shortage. There's a huge backlog of elective procedures. So I think that numbers are going to be going up. So
I think we've built ourselves say stagflation very kind of situation. And as I've been saying for months now I think a soft
landing is not going to be easy. What about the core versus headline. The cause below the headline. But the core this month
which was supposed to be one of the good months was at an annual rate of close to seven and a half percent. So
that's nowhere near an acceptable level. And I think the Fed's forecast from March saying that inflation would be coming down
to the 2s by the end of the year was frankly delusional when issued and looks even more ridiculous today. So let's talk about
the Fed for a minute. President Biden has made it clear he thinks this job is first and foremost one for the Fed. Most
would agree with him. What should the Fed do in response to these kinds of numbers. Let me be very direct with you.
Emergency rate hike should be on the table. An emergency rate hike a week before a meeting would look
panicked at is an unwise strategy. I think the deliberation has been between 25 and 50 basis point moves.
A couple months from now I think a more fruitful deliberation would be between 50 and 75 basis points. I don't think anybody
thinks that we're going to get out of this without interest rates being significantly higher than they are right now.
Fed funds rates and I don't know what the advantage of delay in raising the Fed funds rate is. And I think given that monetary
policy acts on the economy with a significant lag there's some real disadvantages to delay. So I'd like to see
the process be carried forward with a lot of energy and determination. The Fed is saying the right words but I think
they don't appreciate the extent to which given the mistakes they made through last year and even into the early part of this
year. I don't think they appreciate the extent to which those mistakes
mean that they don't fundamentally have credibility. It's alert picking up on that. What would indicate to you that the Fed
does. If I can put it in the vernacular get it. I mean should there be changes in personnel. Should there be a difference in
the overall approach. The Fed. Do we need to know what went wrong.
I'd like to see much more efforts at understanding the why their forecasts were so dramatically wrong
and have been so repeatedly wrong. It's true as they will be quick to point out that often they have echoed the consensus of
professional forecasters or whatever. But this is the fundamental responsibility of the Fed. I think the Faubus model
which is at the center of their academic process their economic forecasting process that's the
FRB U.S. model is not really fit for purpose in terms of inflation. I think they need a different approach. I think that
successful organizations have substantial ranges of viewpoint that are debated in synthesized. What you have to be struck by
whenever you look at the dot plot is how much homogeneity there is across all the people at the Fed who are thinking about the
economic outlook. I think you do have to ask why do why do these mistakes keep being made. Larry in addition to the CPI numbers
this week we also got your recent Michigan consumer sentiment numbers at which we're at a record low the lowest it's been
fifty point eight was the index the lowest it's been since they started doing this back in 1978 which is basically when I was in
law school frankly. So what's the significance of that potentially. And I want to tie it back if I can to stagflation
because my understanding is economist tell us one of the issues of stagflation is when the expectations are there will be
continuing inflation and the driver primarily of that low you miss consumer sentiment was the expectation of inflation.
Look he can't be it can't be good. I'm not sure how well you can compare those numbers over time. It's sort of a surly your time
and people are more disgruntled. In general you know sentiment may be on maybe the lowest it's
ever been. But that's not true certainly of spending behavior. But look it's a clear negative indicator and it goes with what
I've been saying which is I think everybody's got to be anticipating that we're going to not have inflation come down
extremely rapidly and we're going to enter into a period of substantially more sluggishness. That's what's stagflation is
poor growth and problematic inflation performance. And I fear that that's what's ahead of us given the supply shocks we have
suffered. And given that we experience those supply shocks after we had very substantially overheated the economy because of the
policy errors of 2021. Larry let's finish this week with a couple of rapid fire one of which is Linda Kohn the chair of the
FTSE. We've talked before about what you're described as hipster antitrust. We saw her interviewed by the Financial Times this
week. She went after private equity very explicitly. And a lot of the criticisms were not so much about the economics as the
conditions of workers in companies that were bought by private equity. What do you make of what she's saying.
That's not her job. Her job is competition. Competition between companies and making sure that it's robust. It's not to pass
judgment on who the owners of the companies are. I was very sorry to see that. Frankly a lot of her writings were quite
problematic. But many had assured us that her deeds were going to be reasonable and provide the new rejuvenation that
anti-trust represented. That interview seemed to me to be back to academic populism of a quite unfortunate sort. And finally
Larry you have a long and very distinguished curriculum vitae and included in that of course as president of Harvard. Now we
see Harvard is going to be looking for a new president by the way joining Columbia and M.I.T. and NYU. There are a lot of big
institutions of higher learning looking for presence. It was never an easy job. How much harder is is today than it was say
20 years ago. It is probably harder given
all that has to be navigated all the various social revolutions we're having but I think it's much more important because I
think there's never been a moment when ideas and bringing forth new leaders has been more important. And I think the centerpiece
seeking truth through open debate. Committed to the most excellent scholars pursuing the best ideas. I think all of that
is frankly under challenge on our college campuses in a way that it has not been in many years. And so I hope the new generation
of presidents is going to rise to that challenge of truth seeking and excellence.
At a moment when there's a lot of turbulence and a lot of forces at play.